National Income — Set 3

Correct Answer: A. Net Factor Income from Abroad

Gross National Product (GNP) is calculated by adding Net Factor Income from Abroad (NFIA) to GDP. It measures the value of output produced by the residents of a country, regardless of where they are located. This indicator focuses on the nationality of the producers.

Correct Answer: B. Real National Income

Real National Income refers to the value of national income adjusted for price changes relative to a base year. It eliminates the effect of inflation and shows the actual growth in production. Economists use it to compare the performance of an economy over different time periods.

Correct Answer: A. It ignores non-monetary exchanges

GDP does not account for non-monetary transactions like household work or barter systems, which can be significant in developing economies. It also ignores income inequality and environmental degradation. Therefore, a high GDP does not always guarantee a high quality of life for all citizens.

Correct Answer: B. Indirect Taxes

The Expenditure Method sums up consumption, investment, government spending, and net exports. Indirect taxes are not a primary component of this sum; they are part of the market price adjustment. This method views GDP from the perspective of total demand in the economy.

Correct Answer: B. Depreciation

Consumption of fixed capital represents the loss in value of physical assets due to wear and tear or obsolescence during production. It is commonly referred to as depreciation in accounting and economics. Subtracting it from gross figures gives the 'net' value of the aggregate.

Correct Answer: D. Embassies and consulates located abroad

A country's economic territory includes its geographical borders, territorial waters, and its embassies or military bases located in other countries. It represents the area within which people, goods, and capital circulate freely. Understanding this is essential for accurate domestic production measurement.

Correct Answer: A. Income received by individuals from all sources

Personal Income is the total income actually received by the individuals and households of a country. It includes factor incomes as well as transfer payments like unemployment benefits. It is different from National Income as it excludes corporate taxes and undistributed profits.

Correct Answer: C. Cost of inputs used in production

Factor cost is the total cost of all the factors of production (land, labor, capital, and entrepreneurship) used to produce a good. It does not include any taxes paid to the government or subsidies received. It represents the value of output from the producer's perspective.

Correct Answer: D. GDP is greater than GNP

Negative NFIA means that the income earned by foreigners within the country is higher than what residents earn from abroad. In this scenario, domestic production (GDP) will be higher than the national income (GNP). This is common in countries with high foreign investment.

Correct Answer: B. National Income

National Income is a flow variable because it is measured over a specific period, usually a year. Stock variables, like wealth, are measured at a specific point in time. Distinguishing between stocks and flows is fundamental to macroeconomic analysis.